Closing on a house is a thrilling time for buyers: Once you’ve found the one and have an accepted offer, you’re ready to grab the keys and make it your own.
But closing time can also be plenty to rack your nerves. That’s because there’s still a lot that can go wrong at closing before you reach the finish line — from possibilities you’d considered (and feared) to surprises you never even imagined. Here’s a definitive rundown of what can go wrong at closing — and what to do if you face any of these problems (or better yet, how to avoid them in the first place).
What can go wrong on the buyer’s side at closing
Problem: Your credit took a nosedive since you applied for a loan
You can avoid getting into this situation by avoiding making other big purchases or applying for other loans once you are approved for a mortgage and under contract. These are decisions that can impact your credit history, a major factor in your mortgage. Lenders can and do recheck credit right before closing time — so it’s a better bet just to wait on some of those other big financial decisions until after close.
Problem: You lost your job
First, when deciding to purchase a home, you’ll naturally try to make sure you’re at a stable point in your career. And ideally, you’ll get preapproved for a mortgage instead of just prequalifying.
But things do happen: If you lose your job in the process of closing, disclose that as soon as you can (if you don’t, you could be committing mortgage fraud). If you can’t secure new employment swiftly, you might be able to add a cosigner to your loan and count that person’s income toward your purchase. Talk to your agent and loan officer about these options.
Problem: There’s an issue with the Closing Disclosure
By law, you will get your Closing Disclosure three days before closing. Go over it closely, taking a detailed look at your mortgage terms with your broker to make sure you clearly understand everything. Alert your agent immediately if there’s a problem.
Problem: Names are misspelled or inconsistent on your loan documents
This one may seem simple, but it’s actually among the more common problems that can cause a delay in closing. You’ll also get these documents three days before closing, by law. So to avoid a last-minute situation, examine every shred of paperwork on your loan documents in advance — double- and triple-checking to make sure every T is crossed and every I is dotted.
Make sure first, middle, and last names are spelled correctly and are consistent across all documents. If you spot a problem in advance, you can address the situation before it jams up that final closing process.
Problem: You don’t know how to make your down payment
If you’ve budgeted for that down payment, you might think you’re good to go. But the transfer of a big sum could be delayed on the bank’s end. You can steer clear of this issue by bringing your down payment in the form of a certified or cashier’s check — but don’t even try using a personal check; It won’t work.
Otherwise, you can arrange for a wire or bank transfer of funds that gets to the closing agent early (most likely via the title company). If you’re not sure of the exact amount, transfer enough that there’s a cushion. Don’t worry: You will be refunded any extra.
Problem: You didn’t budget for closing costs and are caught flat-footed
Top-selling Mississippi-based agent Steve Houck suggests creating a cushion in your budget to avoid any potential delays at closing.
“There are a few loans where you can funnel part of your closing costs into your mortgage, but that’s very rare,” Houck says. “So if it were my buyer, I would budget whatever your good-faith estimate says that you’ll be bringing to closing and then add a little cushion. Because if you run short of money at the closing table, you’re not going to close.”
Problem: There’s an issue with insurance
Avoid insurance issues at closing by nipping them in the bud much earlier in the process. “As soon as my clients have a contract on a house, I suggest they call and get an insurance quote immediately,” Houck says. “That way they’ll know way ahead of time what the insurance quote is going to be.”
Another important reason to do that, he says: “FEMA flood maps are changed every two years. Suppose that property has become something that requires flood insurance and the seller didn’t know it because they never had to buy flood insurance — that could create a problem. So get a contract, then call for a home inspection, and then call the insurance company — those are the calls that you make before you do anything else.”
What can go wrong on the seller’s side at closing
Problem: There are liens or debts on the title
There’s going to be a delay if your title company discovers any liens on the home — or discovers that it’s the subject of a lawsuit. So you need to make sure you’re going into the closing process with a title that is totally free and clear of any problems — or clouds.
In order to do that, you need to read the preliminary title report that the title company completed shortly after escrow opened. That likely went right to your lender, so ask to get a copy from either them or directly from the title company. Get it ASAP and look it over thoroughly.
“There are certain properties I would immediately order a title search before I do anything else: A foreclosure, a short sale, a bankruptcy, an estate sale,” Houck says. “These are the properties where there’s a strong possibility there could be a cloud on the title. Under those circumstances, you’d want to do it immediately on contract.”
Let’s say the seller took something they were supposed to leave, or left something they were supposed to take. Perhaps there’s damage done to the house from moving things out. Maybe inspection repairs haven’t been completed as promised or expected.
If any of these things happen, the buyer’s agent should work with the seller’s agent right away to resolve the issue. The agents should also negotiate the fair cost of making the seller pay to cover the concern. This might involve placing some of the seller’s proceeds in escrow until the matter is resolved, or making an arrangement for the seller to pay more at closing to cover expenses associated with the problem.
What can go wrong when an act of fate impacts either side
Problem: You crossed your wires moving in
Let’s say the buyer is there before the seller is ready to leave — well, that’s a problem. Avoid that unpleasant situation by creating a contract that addresses it in advance.
Houck explains that most contracts are written in one of three different ways. The most common is known as “possession with date.” In this type of contract, “The buyer takes possession immediately upon closing and full funding,” Houck explains. “If the seller is not out of the house, then they have breached the contract and they face a certain legal liability.”
If the seller knows they cannot vacate the property immediately upon closing, they might instead want to use a second type of contract clause known as a “post-possession agreement.” In this type, the seller can retain possession of the property for a certain amount of time — for example, 48 hours after closing.
Houck also explains a third type of contract stipulation, known as a “Preclosing possession addendum” that will let the buyer move in early. “But it’s not a good idea, in my opinion,” he says. “Let’s say the buyer loses his job and he can’t get a mortgage. Well, he’s in the house — so then you’ve got legal problems.”
Problem: The seller dies, or the buyer dies
You can minimize the complexities of this unfortunate situation by writing the possibility into the contract, Houck says.
“The contracts that we use refer to the buyer and the seller, saying that the contractual obligations go to the heirs if one of the parties — buyer or seller — passes away prior to closing,” he says. “Not all contracts have that clause, and if they don’t, then you could have a potential legal problem. Every contract I write has got that clause in there, and it’s very important.”
Problem: Someone changes their mind
Most contracts are worded such that if the buyer changes their mind, they forfeit their earnest money, and the seller has the right to sue them for specific performance. That is to say, the buyer would be legally obligated to buy the house in question if the seller wins the lawsuit.
But, Houck explains, “Very rarely is a seller going to sue for specific performance, for the reason that you can’t put a house on the market if it’s under litigation. So the buyer would just lose their earnest money — their deposit.”
If the seller defaults, the buyer’s options are open. “In most cases, the buyer can request their earnest money back and request the seller pay them an amount equal to their earnest money,” Houck explains. “Once again, a buyer can sue — but you’re not moving down the street to buy another house if there’s a trial coming up.” So that’s an unlikely scenario.
Problem: A natural disaster occurs
In this case — as in most others — it depends on how the contract is worded, explains Houck, who had several closings coming up when Hurricane Katrina hit New Orleans. “Virtually all contracts have a clause saying that if a property is damaged by fire, wind storm, or natural disaster, then it’s the buyer’s option whether they decide to proceed with it or not,” he explains.
Immediately following a natural disaster like Katrina, the bank will send their appraiser back to all properties pending closing to make sure there’s no damage — and if there is damage, that it’s fixed.
“If the damage is minor — if it blew a few roof shingles off and the seller replaced them — then obviously the buyer is going to proceed,” Houck explains. “But it’s the buyer’s option.”
In the end, all sorts of potential scenarios can delay closing — on the seller’s side, the buyer’s side, or because of unfortunate events that can affect either side unexpectedly. But if you can anticipate the possibilities, you’ll be in the best possible position to wrap up your closing and get those keys… no matter what comes your way in the process.
Header Image Source: (Cytonn Photography / Unsplash)